There is a huge opportunity for banks in the housing sector due to the high demand-supply gap. Higher volume of bank finance to the housing sector is posing many challenges for banks. Falling margins, rising asset-liability gap, increasing NPAs are some of the major emerging challenges. To reduce the asset-liability gap, banks need to start accepting long-term deposits. The initiatives of National Housing Bank to bring into existence a Mortgage Guarantee Company is a welcome move.
Housing finance has favorable impact on the economy as the housing sector is connected with more than 250 industries horizontally and vertically. So, any growth in the housing sector has multiplier impact on the whole economy. One economist has argued that every rupee spent on the housing sector will increase the GDP by more than 75 paise. Another vigorous impact on the economy is that it creates a large number of jobs.
To increase banks' lending of the housing sector in a big way, National Housing Bank (NHB) is coming out with a mortgage guarantee company, which is expected to start its operations by 2005 with the help of Canada Mortgage and Housing Corporation (CMHC), United Guarantee (UG), International Finance Corporation and the Asia Development Bank. This company will stand guarantee for repayment of loans in case of default by the borrowers. This will help banks penetrate widely in the market.
Housing Finance (HF) by Schedule Commercial Banks (SCB) and Housing Finance Companies (HFC) have been growing at a robust rate since the last few years. While HF has seen a compounded annual growth rate of more than 30% in the last 3-4 years, housing loans by SCB and HFC grew by 23% during 1993-2004. During 2002-03, housing loans by banks grew at a hefty growth rate of more than 100%. |
